Under generally accepted accounting principles management has the choice of physically counting inventory on hand at the end of the year or using the gross profit method to estimate the ending inventory.

Under generally accepted accounting principles (GAAP), physical inventory counts are required to accurately determine the ending inventory at the end of the fiscal year. The gross profit method is used for estimating inventory for interim financial reports or when a physical count is not feasible due to a specific event (like a natural disaster), but it is not a substitute for the annual physical inventory count.